Reversing the Bid Process

In certain unusual circumstances, it's the general contractor who suggests a price and the sub who gets to okay the deal, or not. August 13, 2007

QuestionRather than submitting a bid for work to a general contractor with whom I have a long standing relationship, I'm wondering if there's any precedent for reversing the process. That is, the GC bids for my work. Just as with the usual scenario of me bidding for his project, he would have one shot at it and all I can do is say yes or no, or suggest additions/subtractions to be in agreement with his number. No bargaining allowed, though. Has anyone heard of this sort of GC/sub relationship, and would anyone care to comment on consequences/problems with this scenario?

Forum Responses(Business and Management Forum)
From contributor J:I don't know if I would try to do this. Have you done this? I always try to get the budget from the builder. This really helps when bidding on jobs. You can know how fancy to make things and tell him what things can and cannot be included. Usually if I can get the budget number, then I have the job.

From contributor H:Yeah, then you would know how much more he is willing to pay you over and above what you would have been happy with! Unless you're one in a million (which means there are 10,000+- more just like you), it ain't gonna happen.
From contributor A:If I understand you correctly, the answer is yes. I refer to it as "shopping". It goes something like this. The contractor is bidding a cost plus contract. Sometimes they do not have time to get specific pricing for every project within the bid. Instead they guess at allowances for each aspect of construction. These guesses may be based upon multipliers like linear footage or square footage or simply a guess.

So they throw a number like 5k for a mantle. The original estimate was only for allowances (not firm numbers by any means). So he's got this 5k number in his head and more importantly, he has told the customer the 5k number as well. He then shops it to subs like myself. He simply says "can you build this for 5k within the next 3 weeks?". I do the math and I am pretty sure I will make $1500 profit. I take the project and everyone is happy. If I simply say no because of timing, not enough money, etc., the contractor will try to shop this price to his other subs.

If no one can do it for that price in that time frame, he loses a little face and explains to the customer that "if they want it now, it's going to cost them a little more," or honestly, "my initial number was on the low side of the true cost." Then I can take the project based on my new price knowing what he is willing to pay. Obviously this gives you quite a bit of leverage if you don't really need the work in the first place.

The only downside is that over time based on your relationship with the contractor, he may not trust your general pricing and start trying new subs. In my case this has happened. My contractor tried a couple of other subs and found that their cost/quality/timing/prices were not on par with my own. That actually reinforces our relationship in the future. It also gives me more leverage to get better pricing.

In my experience this only happens on multimillion dollar residential cost plus contracting. The contractor basically doesn't care about the actual cost. The quality and timing of these projects far exceeds the cost.

This relationship has made my business more profitable than any other aspect. I consider myself fortunate to have maintained such a relationship. I am currently trying to nurture a similar relationship with a second local contractor. The key to this is that both of these contractor's work is 90% cost plus.

From contributor D:Thanks for your responses. My question stems from the project described in the Architectural Woodworking section entitled "raised panel wainscoting in spiral stairwell?", a thread which generated a lot of really interesting discussion. I'm going to start a new thread in this section to pose my question in a different way, which is more to the point...

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